Voya 2014 Annual Report Download - page 53

Many of these policies include living benefit riders, including guaranteed minimum withdrawal benefits for
life (“GMWBL”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits
(“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). All deferred variable annuity contracts
included guaranteed minimum death benefits (“GMDB”).
The financial crisis of 2008-09 resulted in substantial market volatility, low interest rates and depressed
equity market levels. Our variable annuity profitability declined markedly in 2009 and 2010 under these adverse
market conditions, as customer account values fell below guaranteed levels and therefore our liabilities with
respect to the underlying guarantees increased. Moreover, significant reduction in earnings from reduced mutual
fund fees and increased hedging costs exacerbated the decline in profitability.
We have taken numerous actions since the financial crisis to strengthen our balance sheet, increase
transparency and improve the risk profile of the block, including the following:
• in 2009, we decided to cease sales of retail variable annuity products with substantial guarantee
features. The products were fully closed to new sales in early 2010 and the management of the block
shifted to run-off;
• in 2010, we also refined our capital hedge overlay (“CHO”) program to dynamically protect regulatory
and rating agency capital levels in down equity market scenarios;
• in early 2011, we began hedging the interest rate risk of our GMWBL book of business;
• in late 2011, we refined our policyholder behavior assumptions to more closely align with experience
resulting in U.S. GAAP and gross U.S. statutory reserve increases of $741 million and $2,776 million
in the fourth quarter of 2011, respectively; and
• in late 2014, we continued to refine our CHO program to also protect regulatory and rating agency
capital from increased volatility as well as credit spread widening scenarios.
U.S. GAAP accounting differs from the methods used to determine regulatory and rating agency capital
measures. Therefore our hedge programs may create material earnings volatility for U.S. GAAP financial
statements.
Our risk management program is focused on balancing key factors including regulatory reserves, rating
agency capital, risk-based capital (“RBC”), liquidity, earnings, and economic value. There is significant
operational scale (approximately 415,000 variable policy holders and $43.2 billion in AUM in our CBVA
segment as of December 31, 2014) which ensures ongoing hedging, financial reporting and information
technology maintenance expense efficiencies.
The block continues to generate revenue from asset-based fees. On a U.S. GAAP basis, we continue to
amortize capitalized acquisition costs over estimated gross revenues and we incur operating costs and benefit
expenses in support of the segment.
Our focus in managing our CBVA segment is on protecting regulatory and rating agency capital from equity
market movements via hedging and judiciously looking for opportunities to accelerate the run-off of the block,
where possible. For example, in the fourth quarter of 2014, we offered enhanced income for certain eligible
GMIB policyholders which allowed them to annuitize prior to the end of their 10-year waiting period.
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